Focus On Taxation: W2 Reporting Of Health Coverage

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The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (2010 Healthcare Reform Act) have brought about many changes. This legislation will require employers to report the value of employer-sponsored health coverage on each employee’s W-2. Reporting for 2011 is optional. Guidance on future reporting is expected before year end from the IRS.

December 6, 2010

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (2010 Healthcare Reform Act) have brought about many changes. This legislation will require employers to report the value of employer-sponsored health coverage on each employee’s W-2. Reporting for 2011 is optional. Guidance on future reporting is expected before year end from the IRS.

Under the original legislation, the W-2s issued under this new requirement would not be prepared until early 2012. However, if a terminated employee requests a Form W-2, a copy must be provided within 30 days. This means employers need to be prepared to report this information which will presumably be shown in Box 12 on the W-2.

Unless reporting requirements are changed, most types of employer-sponsored health benefits will be required to be reported. This includes medical plans, prescription drug plans, dental and vision plans. The reporting requirement does not apply to health flexible spending accounts, health savings accounts, or specific indemnity plans.

For example, if an employee is enrolled in a major medical plan, a dental plan, and a vision plan the total value of all these health-related employer-sponsored policies is to be reported on the W-2.

The amount required to be reported includes amounts paid by both the employer and employee. Therefore tracking these costs will not be as simple as reporting the amounts deducted from the employee’s pay.

Employers should now consider implementation policies for tracking these amounts. As more guidance from the IRS becomes available, RubinBrown will keep you updated.

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.